Emergency power purchase – Those responsible should bear the losses

By Dr Janaka Ratnasiri-March 2, 2020, 8:54 pm

A recent media report quoted the Minister of Power, Energy and Transport Management as having said that "the Cabinet had given conditional approval to begin construction for the much delayed 300 MW Kerawalapitiya LNG power plant to Lakdhanavi Ltd. to start construction immediately after settling the litigation case. The report further said that "The delay in the construction of the Kerawalapitiya LNG power plant has created a power crisis. Our aim is to start construction in March and commission the plant in 2023. The bureaucratic red tape contributed much to delay the LNG power plant project".

Minister given misinformation

The last statement that "The bureaucratic red tape contributed much to delay the LNG power plant project", is totally wrong information given to the Minister either by officials in the Ministry or by officials in the Electricity Board (CEB). It may be recalled that the CEB invited requests for proposals (RFP), as far back as November 2016, for building a 300 MW gas/oil power plant, on build, own, operate and transfer (BOOT) basis at Kerawalapitiya.

The Minister was previously quoted in a news item appearing in The Island of 02.01.2020 saying that "the loss incurred by the CEB will exceed Rs. 120 billion in 2020, which in 2019 was Rs. 85 billion. He has further said that CEB has been making losses because it has not constructed any large scale least-cost power plants since 2014.

At that time, the writer posed the question to him, in an article published in The Island of 06.01.2020 whether "he will inquire into the reasons for not building new power plants and take punitive action against those responsible for delaying the projects and causing so much losses to the country". But instead of doing that, the Minister attempts to whitewash the culprits by saying that the delay was due to bureaucratic red tape, which is obviously not the case.

According to the RFP, the tender was to be finalized in August 2017 and initial phase of open-cycle operation generating 200 MW to be completed by mid-2019 with the second phase of combined-cycle operation generating 300 MW was to be completed by mid-2020. This means that had the procurement process proceeded as planned, by now, an additional 200 MW would have been connected to the grid and another 100 MW connected within a few more months.

Delay in awarding the tender

It is surprising that the authorities took an additional two-and-a-half years for the contract to be awarded for building this power plant. This delay has resulted in the government seeking emergency power to meet the shortfall of capacity with the hydro power capacity also declining. In a series of articles published in The Island of 27th and 28th December 2018 under the caption "Delay in building new power plants – Who’s to be blamed?", the finger was pointed at the CEB for the delay. The article highlighted the fact that the main reason for the delay was the many shortcomings in the 500-page RFP documents prepared by the CEB which failed to give clearly the specification targets that should be met by the plant. These shortcomings were described in detail in the two articles referred to above. Neither the CEB management nor the CEB Trade Unions has refuted these allegations. The officials in the Procurement Division of the CEB who was responsible for drafting the RFP should be held responsible for the blunder they have made in drafting such a poor document.

According to information appearing in the media, the Technical Evaluation Committee (TEC) had apparently recommended the lowest bid which was from a local company. However, on an appeal made by the competing bidder, a Chinese Consortium, the matter was referred to the Procurement Appeal Board (PAB) and on its recommendation, the Ministry has decided to recommend to the Cabinet the appellant party for the award. The Cabinet of Ministers accepted this recommendation and decided to award the contract to the appellant party who had offered a higher bid. This has resulted in the original recipient of the award seeking redress from the High Courts. 

Previous cases of undue

procurement delays

This is not the first time the CEB has caused undue or indefinite delays in procuring power plants. On three occasions, during the first decade of the millennium, three entities from Sri Lanka had called for expressions of interest (EOI) to build 1000 – 1200 MW of power plants but none pursued. In October 2001, Treasury invited EOI for building 3x350 MW of thermal power plants on BOO basis, keeping the fuel option open, which was later limited to coal, but not pursued. In a press notice published on 21.08.2003, the Ministry called for applications for pre-qualifying suppliers initially for building a 300 MW power plant with the possibility for future expansion on BOO basis. This too appeared to have been dropped.

Again, in November 2006, the CEB called for EOI for building 4x300 MW coal power plants on the Southern Coast, on BOO basis for commissioning during 2012 -2020. This project too appeared to have suffered the same fate as the previous two projects. There was no announcement by the CEB or the Ministry as to why the projects were not pursued. When such cancellations of projects occur, the outcome is that the country loses credibility among reputed suppliers who will then ignore calls for proposals thereafter.

In 2005, India offered to build a 500 MW coal power plant at Sampur near Trincomalee and in December 2006; a Memorandum of Understanding (MOU) was signed between the CEB and the National Thermal Power Corporation of India (NTPC), a government owned company. However, it took five years for the CEB and the NTPC to agree on the terms and form a Joint Venture for pursuing the project, which was done in September 2011. The two parties took another five years to complete feasibility studies, Environment Impact Assessment (EIA) studies and other formalities. It is difficult to understand why the CEB had to spend 10 years to finalise the preliminaries. If the negotiations had not dragged for so long, the power plant would have been built by now.

Observations of Presidential Commission of Inquiry

The present matter was also referred to the Presidential Commission of Inquiry (PCI) and according to a news item in The Island of 14.08.2019, the Chairman of the PCI, after conducting a hearing on this issue, has found "if all those who were involved in the procurement process of the construction of a 300 MW LNG power plant at Kerawalapitiya had acted responsibly, the construction of the power plant would have been completed by now and a significant amount of money spent on purchasing emergency power could have been saved". Testifying at the PCI, the former Secretary of Power and Energy also has said that the CEB was responsible for the delay in evaluating the tender (Ceylon Today, 22.09.2019).

According to a news report in The Island of 23.09.2019, the Chairman of the PAB had told the PCI that PAB had no authority to review projects that fell under the BOOT form of project financing. He had further said that he did not know that the proposed power plant was a BOOT project when the PAB gave a ruling to award the contract to the higher bidder. The writer in his article in The Island of 06.01.2020 again posed the question as to whether the officials responsible for such decisions resulting in undue delay in awarding this tender would be taken to task by the new government?

National Procurement Commission

In 2015, the government established the National Procurement Commission (NPC). This was one among the nine independent commissions established under the 19th Amendment to the Constitution (NAC) of Sri Lanka. The NAC Act describes the constitution, functions and powers vested on the NPC. It is interesting to find out whether during the last four years of its existence whether it has been effective in streamlining procurement procedures and in monitoring the procurements being made in government organizations as provided for in the NAC Act, particular in respect of power sector.

Among the several functions assigned to NPC are the following.

monitor and report to the appropriate authorities on whether the procedures for the selection of contractors, and the awarding of contracts for the provision of goods and services, works, consultancy services and information systems to government institutions, are fair and transparent; and

report on whether members of Procurement Committees and Technical Evaluation Committees relating to the procurements, appointed by government institutions are suitably qualified; and

investigate reports of procurements made by government institutions outside established procedures and guidelines, and to report the officers responsible for such procurements to the relevant authorities for necessary action.

Recovering the losses

A 200 MW power plant will generate about 100 GWh of energy monthly operating at 50% plant factor. Assuming the price of emergency power is LKR/kWh 20 more that the price quoted for the power from the 300 MW power plant which is LKR/kWh 15, the monthly loss by engaging emergency power will be about LKR 20 billion. Depending on the price negotiated for emergency power, this loss could be higher or lower.

The Minister may therefore request NPC to investigate under the mandate given to it, as to whether the procedure adopted by CEB in procuring the 300 MW power plant was correct or not, considering the fact that the plant was to be purchased, maintained and operated by the Investor. Generally, for such projects, detailed 500-page RFP document is not necessary because many redundant clauses in it had made the evaluation process complicated and ambiguous as explained in the write up in December 2019.

The CEB appeared to be not consistent in granting approval for building power plants. For example, Chinese are building a 400 MW Natural gas power plant at Hambantota and there was no RFP issued. It is the issuing of the 500-page RFP that was the primarily cause for the delay. If the CEB officials are found guilty of causing the delay deliberately, the Minister should attempt to recover the losses from the relevant CEB officials and also from members of the TEC and PAB for any wrong decisions they may have made contributing to the delay.